The Sharing Economy: an Innovative Way to Do Traditional Business by Jennifer Gardner, NAIC Data Coordination and Statistical Analysis Manager November 2016

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The Sharing Economy: An Innovative Way to Do Traditional Business By Jennifer Gardner, NAIC Data Coordination and Statistical Analysis Manager November 2016

The unemployment rate, currently at roughly 5%, peaked after the 2007–2008 financial crisis at 10% in October 2009.1 Consequently, many individuals stopped seeking employment and have increasingly looked to make money in what is sometimes referred to as the “gig economy.” According to the Bureau of Labor Statistics (BLS), in October 2016, more than 15 million people in the U.S. designated their status as “self-employed.” Moreover, 53 million individuals reported doing freelance work in the U.S. in 2016, representing 34% of the workforce.2

As a result of the financial crisis, many corporations began downsizing, leaving millions unemployed. According to a study by the National Bureau of Economic Research (NBER), during the financial crisis, “those countries whose unemployment grew the most suffered the biggest loss in confidence in institutions.”3 The study found “relatively high state unemployment rates yield substantial and statistically significant declines in trust in ‘big business,’ ‘major companies’ and a similar (albeit insignificant) decline in the perceived honesty of ‘business executives.’” After the financial crisis, distrust for big business grew, and people began looking for different ways to buy and sell goods without the added cost and hassle of a middleman. At the same time, millions of unemployed Americans began looking for new opportunities to earn money.

The sharing economy is simply a new term for an old method of commerce that can now be completed faster than ever with the advent of smart devices driving constant communication and instant gratification. According to a study conducted by the Pew Research Center, in October 2015, 68% of Americans had smartphones, up from just 35% in 2011, while 45% of Americans had tablet computers.4 Applications for smart devices have the capability of making instantaneous connections between buyers and sellers.

The sharing economy is essentially an online or application-based economy, where buyers and sellers communicate and process business transactions. Sharing economy companies create a faster, simpler way to match supply and demand, using online technologies often through a smart device application

1 http://www.bls.gov/home.htm. 2 Hippie, S., and L. Hammond, 2016. “Self-employment in the United States,” accessed at www.bls.gov/spotlight/2016/self-employment-in- the-united-states/pdf/self-employment-in-the-united-states.pdf. 3 Stevenson, B., and J. Wolfers, J., 2011. “Trust in Public Institutions Over the Business Cycle,” National Bureau of Economic Research, accessed at www.nber.org/papers/w16891.pdf. 4 Anderson, M., 2015. “Technology Device Ownership: 2015,” Pew Research Center, accessed at www.pewinternet.org/2015/10/29/technology-device-ownership-2015/.

November 2016 to match buyers and sellers. Ebay was founded in 1995 as a peer-to-peer online marketplace and became hugely popular in the early 2000s. Ebay started a rating system whereby users are encouraged to rate one another on each transaction. This rating system provides a way to evaluate the experience and provide reviews of each user. Ebay encourages buyers and sellers to read the reviews of the person with whom they intend to do business, placing the responsibility for safety and precaution on its users instead of the company.

Uber adopted the Ebay business model, developing a peer-to-peer transaction that uses user ratings and reviews. Uber, which started as a black car service in 2009, realized there was more market share to gain through lower-cost trips and began its commercial ride-share model in 2013. This model builds trust into each transaction. On both sides, these ratings help people trust they will get what they are expecting. This model plays perfectly into the recession-era mindset of mistrust for big business and going local, adding an element of human connection to every transaction.

• COMMON TERMINOLOGY The “sharing economy” was coined from the idea that people allow strangers to use their personal items, much like sharing. Essentially, the sharing economy is creating a business venture by renting personal items or providing services to people found online in a digital community. However, this type of sharing is not free. True sharing economy companies are those that do not involve an exchange of money—for example, sites like freecycle, couchsurfing, Maine Tool Library and Neighborgoods.

The U.S. Department of Commerce Office of the Chief Economist (OCE) recently proposed a new term for the “sharing” or “collaborative” economy, suggesting that a better description is “digital matching firms.” The OCE stated these firms exhibit the following characteristics: “1) they use information technology, typically available via web-based platforms, such as mobile ‘apps’ on Internet-enabled devices, to facilitate peer-to-peer transactions; 2) rely on user-based rating systems; 3) offer the workers who provide services via digital matching platforms flexibility in deciding their typical working hours; and 4) to the extent that tools and assets are necessary to provide a service, digital matching firms rely on the workers using their own.”5

There are many different terms derived from the so-called sharing economy. Commonly used terms include “app-based economy,” “collaborative consumption,” “gig economy,” “on-demand economy,” “peer-to-peer markets,” and “e-lancing.” • App-based economy is a term based on the premise that many of these companies sprouted from the use of smart device applications. Transactions are all handled through a device so people have easy access to a constant stream of communication between buyers and sellers. • Collaborative consumption is based on the way consumers use products and find services. The green movement and the sense of urgency surrounding climate change have made Americans

5 www.esa.gov/sites/default/files/digital-matching-firms-new-definition-sharing-economy-space.pdf. 2

November 2016 evaluate the way they use products. There is a movement to use less, recycle more and live more simply. In accordance, collaborative consumption is the idea that one person owns an item, such as a residence or good, that they do not need access to around the clock so they rent it out while they are not using it. In this way, we reduce the need to manufacture new goods by using items already in existence. Because we have constant communication with others through smart devices and applications created specifically for these types of transactions, we maintain our instant gratification lifestyle while reducing waste. • Gig economy is a slightly different spin on the sharing economy that allows people with time and skills an opportunity to make money. Companies like TaskRabbit and Zaarly allow users to find someone to do their chores for them. Services listed include lawn care services, minor home repairs, furniture assembly, cleaning or even waiting in line. The user explains what he or she needs to have done; lists the date, time and address; and then waits for a “tasker” to accept the job. • On-demand economy refers to immediate delivery of goods. The on-demand economy and the sharing economy contain overlapping themes of immediate gratification and service in an instant. • Peer-to-peer markets, as defined by the NBER, are those that “allow small suppliers to compete with traditional providers of goods or services, making it easy for buyers to find sellers and engage in convenient, trustworthy transactions.”6 Peer-to-peer markets include any type of company that matches buyers and sellers of goods or services without the need for a middleman. Peer-to-peer lending platforms exist to provide an alternative to financial institutions for obtaining a loan. Lemonade is the first peer-to-peer insurance marketplace to enter the U.S. Lemonade’s business model is essentially an online mutual company that pools resources to cover its members. If members incur a financial loss, they are entitled to receive indemnification from the pooled premiums. If there are no losses in a given period, the members are refunded a portion of their initial premium payment. Lemonade has yet to begin selling policies in the U.S., although it has projected to be up and running soon.

• BUILT ON TRUST Airbnb founder Joe Gebbia presented a Ted Conference in March 2016 on how Airbnb designs for trust. Airbnb originated as a peer-to-peer rental site whereby a person could rent his or her home to strangers for a fee. Airbnb encountered several problems with its original model. One of the problems was people were reluctant to trust complete strangers. Airbnb determined that by creating a means of communication between the renter and owner, it could reduce that reluctance. It created a rating system where users could review and rate the property, as well as the owner. Airbnb increased the information about hosts available on the site and even provides recommendations for the correspondence between host and guest. It promotes communication that includes likability and kindness—therefore, strengthening mutual respect and trust between the parties to the transaction.

6 Einav, L., C. Farronato, and J. Levin, 2015. “Peer-to-Peer Markets,” National Bureau of Economic Research Working Paper No. 21496. 3

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After implementing this new business model based on trust, the number of stays booked through the site soared. We all seek to do business with those we trust. The sharing economy seeks to capitalize on that by building trust in the individuals using the site, as well as trust in the company’s brand. Airbnb is building its brand as a trusted source for creating fun new experiences with individuals you come to know and enjoy doing business with.

• ECONOMIC IMPACT According to the PricewaterhouseCoopers (PwC) consumer intelligence series “The Sharing Economy,” more than 80% of the 1000 U.S. consumers PwC surveyed in December 2014 thought the sharing economy makes life more affordable, convenient and efficient. More than 70% of respondents said they believe the sharing economy builds a stronger community and is more fun than engaging with traditional companies. However, nearly 70% of respondents also said they will not trust sharing economy companies until they are recommended by someone they trust.7

Interestingly, the demographics of those offering services in the sharing economy are not concentrated to any particular segment of the population. Young adults may use the sites to supplement entry-level salaries or build their resume. Seniors may use it to supplement their income in retirement. Uber formed a partnership with the AARP in July 2015. AARP’s Life Reimagined is a program to help people transition into retirement. Uber and Life Reimagined offer a $35 incentive for members who sign up for Uber through Life Reimagined and provide at least 10 trips on the Uber application.

JPMorgan Chase conducted a survey of 1 million customers in an attempt to quantify the size of the sharing economy market. Based on its sampling, JPMorgan Chase estimated more than 4% of adults in the U.S. participated in the sharing economy over a three-year period between October 2012 and September 2015.8 Moreover, the scale and size of Uber and Airbnb, two of the most well-known companies within the sharing economy, now rival, or even surpass, those of some of the world’s largest businesses. According to a list published by CB Insights, Uber is valued at $62.5 billion, and Airbnb is worth $25.5 billion.9 Airtasker claims more than 610,000 people use its site, creating more than $54 million in jobs.

There are many ways to measure the sharing economy’s impact on the U.S. economy and markets. Consumers benefit from increased supply, ease of use and reduced pricing due to lower overhead expenses. Freelancers benefit from flexible schedules and access to jobs on demand. The environment benefits from shared use of resources. However, the service providers for sharing economy companies have fewer benefits than traditional forms of employment such as access to health, disability and

7 PricewaterhouseCoopers. “The Sharing Economy,” Consumer Intelligence Series, accessed at www.pwc.com/us/en/industry/entertainment-media/publications/consumer-intelligence-series/assets/pwc-cis-sharing-economy.pdf. 8 JP Morgan Chase & Co. Institute, 2016. “Paychecks, Paydays and the Online Platform Economy: Big Data on Income Volatility,” accessed at www.jpmorganchase.com/corporate/institute/document/jpmc-institute-volatility-2-report.pdf. 9 https://www.cbinsights.com/research-unicorn-companies. 4

November 2016 workers’ compensation insurance. They also are responsible for any training, capital investment and maintenance costs to remain viable candidates to render services.

Theoretically, people share more and consume less, which is good for the environment but not good for manufacturing. “UberPOOL10 purportedly saves more than 13,000 gallons of fuel in San Francisco each month,” and demand for Uber vehicles “peaks at the same times that DUI/alcohol incidents peak.”11 However, ride-sharing firms have caused a decrease in the value of taxi medallions in New York,12 and taxi industry revenues in Seattle have dropped approximately 28% in two years.13

Moreover, according to a Boston University study, a 10% increase in listings on Airbnb in Texas results in a 0.37% decrease in monthly hotel revenues.14 Many traditional companies are getting on board with the trend, setting up their own online markets or investing in sharing-economy companies. Even traditional automakers are looking for a piece of the action. General Motors (GM) invested $500 million in Lyft, offering discounts for Lyft drivers to lease GM vehicles. GM is also working with Lyft to develop an on-demand network of self-driving cars.15

• INSURANCE PERSPECTIVE When looking at potential gaps in insurance coverage created by the sharing economy, it is important to look broadly at any new innovations. The technology itself does not usually create insurance implications; instead, the technology frequently makes what was once a limited activity into a mainstream one. These types of situations are important to insurance regulators as they seek to ensure consumers are not being harmed and the industry is aware of and responding to insurance coverage gaps. As technology start-ups market their innovations, insurance is not likely what entrepreneurs will think about first. Insurance regulators must monitor these new companies to make sure they are complying with insurance laws and regulations.

• COMMERCIAL RIDE SHARING Commercial ride sharing, the largest segment of the sharing economy, is a service that arranges for transportation, much like a taxi. However, commercial ride-sharing companies, also known as transportation network companies (TNCs), prearrange trips through a mobile device. In fact, many states and cities have laws that require TNCs to prearrange transportation through a mobile device, prohibiting street hails. Some municipalities also prohibit TNCs from picking up passengers from local airports. The most widely known and recognized TNC is Uber, but there are many others in existence today. Several TNCs have developed niche markets. Chariot for Women is a transportation service catering to women, while HopSkipDrive is advertised as transportation for busy kids.

10 UberPOOL allows you to share your ride and split the cost of your trip with another Uber rider headed in the same direction. 11 Uberexpansion.com. 12 Barro, J., 2015. “New York City Taxi Medallion Prices Keep Falling, Now Down About 25 Percent,” The New York Times. 13 Samuelson, R., 2015. “Seattle taxi revenue dropping precipitously due to Uber and Lyft,” Seattle Sun Times. 14 Boston University, 2015. “The Rise of the Sharing Economy: Estimating the Impact of Airbnb on the Hotel Industry.” 15 Isaac, M., 2016. “General Motors, Gazing at Future, Invests $500 Mllion in Lyft,” The New York Times, accessed at www.nytimes.com/2016/01/05/technology/gm-invests-in-lyft.html?_r=1. 5

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Commercial ride sharing presents unique insurance and legal implications because every state (except New Hampshire) has a financial responsibility law for the use of automobiles, frequently requiring liability insurance that meets minimum liability limits. Coverage gaps were created for ride-share drivers because personal auto insurance typically excludes business use or livery. When TNCs first began operating, they were not explicitly subjected to any state financial responsibility laws. The taxi industry has historically been regulated at the municipal level. However, TNCs were hard-pressed to fit into those municipal codes due to the mix of commercial and personal driving.

The National Association of Insurance Commissioners (NAIC) created the Sharing Economy (C) Working Group in the fall of 2014, led by Commissioner Dave Jones (CA). The Working Group developed a white paper titled Transportation Network Company Insurance Principles for Legislators and Regulators, which recommended legislative action and alerted regulators to the need for consumer disclosure. Uber, Lyft, several insurers and industry associations worked together to draft language for a compromise model bill. The language was coined the TNC Insurance Compromise Model and was used as a basis for a model bill developed by the National Council of Insurance Legislators (NCOIL). NCOIL added a requirement to notify lienholders about potential gaps in property damage coverage for vehicles encumbered by liens and also broadened the language regarding rating agencies authorized to rate surplus lines insurers. The TNC Insurance Compromise Model and the NCOIL model became the basis of many state laws regarding TNCs. At least 38 states and territories have passed legislation regarding TNCs.

Today, TNCs are typically required to provide full coverage, with at least a $1 million limit when the driver is matched with a passenger or there was a passenger in the vehicle, and they must offer at least limited contingent liability coverage when the driver has logged into the application and has not yet been matched with a passenger for transport. TNCs typically exclude uninsured/underinsured motorist (UM/UIM) coverage, medical payments coverage, comprehensive coverage or collision coverage when the driver has the application on but has not been matched with a passenger. UM/UIM and medical payments coverage is required when a match has been made or there is a passenger in the vehicle. Comprehensive and collision is often only required if the driver elected the coverage in his or her personal auto policy.

Due to the typically low liability limits and a lack of property damage coverage offered to drivers by the TNC during the period when the application is turned on but the driver is not matched with a passenger, many insurers have developed products to fill any remaining coverage gaps. TNC products vary by insurer and state, but many provide insurance with higher limits and broader coverage while the application is on but no match has been made. Other insurers provide coverage regardless of when an accident occurs.

November 2016 The complexity of coverage periods has driven the formation of relationships between insurers and TNCs. TNCs and insurers need to communicate and understand when incidents occur for claims handling. Because of this coordination of coverage, some TNCs and insurers are using usage-based insurance. In January 2015, Uber teamed up with Metromile on a pay per mile program for Uber drivers.16 In June, Uber announced that it had developed technology to monitor the speed and braking of its drivers.17

While Uber is similar to a taxi service, UberPOOL is more likened to a bus route or paid carpool system. UberPOOL has the potential to cut down on the number of people on the road by allowing drivers to pick up multiple passengers on the way to a location. The legal and insurance implications are the same for UberPOOL as they are for Uber. If the driver is not matched with a passenger, Uber provides limited liability coverage only. If the driver has accepted a ride request or has at least one passenger in the vehicle, Uber provides liability and UM/UIM coverage with $1 million per occurrence as well as property damage coverage contingent upon the limits and coverages purchased in the driver’s personal auto policy.

• VEHICLE SHARING Vehicle sharing is another option for transportation without the cost or maintenance of vehicle ownership. Vehicle sharing is a collaborative consumption concept allowing people to share their vehicles with other people. Zipcar, Flightcar, Car2Go, TURO, Sharoo, Getaround, DriveNow and EasyCar Club are all vehicle-sharing companies. This concept competes with traditional rental car companies, and the insurance implications are similar. Many traditional car rental companies purchased vehicle- sharing companies or built their own application to provide rental vehicles on demand. Zipcar is owned by Avis, Hertz started Hertz On Demand, and Enterprise created Enterprise CarShare.

Traditional car rental companies that use their own fleet typically have the same terms and conditions they would with a traditional car rental. It is common for personal auto policies to include limited coverage for rental vehicles and for credit card companies to offer some limited rental coverage as well. TURO, formerly known as RelayRides, offers a $1 million dollar liability policy to owners while their vehicle is rented through the application. Additionally, it offers property damage coverage for those who elect into the protection plan and comprehensive coverage to match the owner’s personal auto policy.18

Vehicle sharing creates two time periods for insurance consideration: 1) while the vehicle is not rented, the owner’s personal auto policy is primary and inforce; and 2) while the vehicle is rented, the vehicle- sharing company often provides coverage for the owner if the renter does not otherwise have coverage from a personal auto policy, non-owned auto policy or supplemental coverage through a

16 https://techcrunch.com/2015/01/28/metromile-launches-uber-car-insurance-where-drivers-only-pay-for-personal-miles/. 17 MacMillan, D., 2016. “Uber’s App Will Soon Begin Tracking Driving Behavior,” The Wall Street Journal, accessed at www.wsj.com/articles/ubers-app-will-soon-begin-tracking-driving-behavior-1467194404. 18 https://support.turo.com/hc/en-us/articles/203991830-How-does-insurance-work-. 7

November 2016 credit card company. Because the time periods are easily understood and identifiable, vehicle sharing does not appear to create coverage gaps like commercial ride-sharing.

• PRODUCT DELIVERY Another type of sharing economy service using personal automobile is product delivery. Product delivery services are considered part of the on-demand economy. On-demand delivery is available for many different types of products. Peapod was founded in 1989 in Chicago as a grocery delivery service and has reportedly delivered more than 23 million orders across 24 U.S. markets.19 Shadowfax, Instacart, Uber Rush, Postmates, Ghostruck, Favor and Kanga are just a sample of the delivery service companies available today.

UberRush is designed as a delivery service. No time to run to the drycleaners? No problem. UberRush will go there for you. How do you know the items will get to their intended drop off? The application provides real-time tracking. What if you just sold an item on Craigslist, and you need the courier to deliver the product and bring back your payment for the transaction? UberRush has round trip service as well. There are restrictions on the types of items that can be delivered. For instance, alcohol, stolen items, animals and explosives are prohibited. Instacart is an on-demand grocery delivery service. Customers order groceries from their favorite local store and have them delivered to their doorstep. Delivery drivers for many of these companies are considered independent contractors and are not likely to be offered insurance coverage during delivery.

Many of these delivery companies contract with local restaurants and retailers to deliver goods to their customers. UberEats contracts with restaurants to deliver take out. Uber maintains the same coverage for its delivery drivers as their drivers who transport passengers. It offers liability coverage for up to $1 million dollars per incident. This coverage is primary to personal auto policies but excess over any commercial policies. It also offers comprehensive and collision coverage if the driver maintains the coverage on his or her personal auto policy. The comprehensive and collision coverage has a $50,000 limit and a $1,000 deductible. Uber maintains a liability policy when the application is on but no passengers or delivery requests have been matched to the driver. This policy is secondary to any other policies in place, and the limits are $50,000 per person, $100,000 per incident and $25,000 dollars for property damage.

• HOME SHARING Home sharing has the second largest market share of the sharing economy. Home-sharing companies like Airbnb and Home Away offer consumers the ability to rent out an individual’s personal residence or vacation home. Stays can be booked for a room or the entire residence. Airbnb is marketed as a spin on the traditional hospitality industry whereby guests get the local experience by staying in someone’s personal residence. Airbnb has served more than 60 million guests in its more than 2 million listings

19 https://www.peapod.com/site/companyPages/our-company-overview.jsp. 8

November 2016 worldwide in 191 countries. Airbnb currently offers an insurance policy free of charge to all of its hosts in the U.S., as well as landlords if the property is rented and any applicable homeowners’ associations.

The policy includes hosts as named insureds and provides liability coverage for third-party bodily injury or property damage. The coverage provided is a general commercial liability policy underwritten by a surplus lines insurer with a limit of $1 million dollar per occurrence and a $10 million general aggregate limit. Coverage is considered primary and not contingent upon denial of coverage maintained by the host. Currently, Airbnb does not provide coverage for medical expenses or personal liability. Medical expense coverage is typically used for minor injuries that occur on the premises through no fault of the named insured, owner or renter of the property. Personal liability would be used for things like slander or libel, which could be pertinent risks due to the customer rating system used by the online marketplace.

Airbnb also has a host protection guarantee that reimburses hosts for property damage caused by guests due to accident or fault, if the guest does not otherwise reimburse the host. Hosts must ask the guest for payment first. Guests could potentially make a claim under their own homeowners or rental insurance, which could provide coverage under the liability section. If the claim is not resolved between the host and the guest, Airbnb will reimburse the host for damages up to a limit of $2,000.

HomeAway, a subsidiary of Expedia Inc., owns VRBP and VacationRentals.com, as well as many others operating outside the U.S. HomeAway rents entire units only—not individual rooms or suites—and is marketed to investors in secondary homes or vacation properties. HomeAway does not provide insurance coverage automatically for hosts. It recommends that hosts purchase a customized policy through HomeAway Assure, which is a CBIZ Insurance Program. Policies offered through HomeAway Assure are specific to rental properties and negate the need for a personal dwelling or homeowners policy for the listed property.20

No state or territory in the U.S. currently requires people to have homeowners insurance, although most banks or financial institutions will require it if there is a lien on the property. Several states have considered legislation on home sharing but generally include subject matter on zoning laws and collection of use or visitor taxes, excluding any language regarding insurance requirements.

It is typical for homeowners insurance policies to include language allowing for owners to take in boarders on occasion. The use of the word “occasional” could be misleading and is not well-defined. Because of this, several insurers and insurer organizations have created endorsements to exclude coverage for losses relative to home sharing. The Insurance Services Office (ISO) developed mandatory endorsements for the standard homeowner’s program to exclude coverage for losses relative to home sharing. This would include losses due to theft, vandalism, liability coverage and personal injury. The

20 HomeAway, 2009. “Vacation Rental Insurance FAQs,” accessed at https://community.homeaway.com/docs/DOC-1357. 9

November 2016 home-sharing exclusion would not apply to property damage coverage unrelated to home sharing, such as fire, windstorm or hail. The ISO is also developing separate coverage options specific to home sharing that would restore and broaden coverage excluded under a standard homeowners policy.

Home-sharing hosts are encouraged to review any personal homeowners or renters policies, as well as the agreements and coverage options available through the home-sharing company. If hosts are renting the property they intend to list on the site, they should also understand the terms and conditions of their lease to determine if hosting will violate the terms and conditions of their lease agreement. If the property is part of an HOA, hosts should review the terms of their HOA agreement to see if hosting would violate any restrictions from their HOA.

Home-sharing guests are encouraged to read their own homeowners or renters policy to understand if their policy would cover them if they were liable for damages to the rental property or the host’s personal items. Guests should also check with the home-sharing site to ensure there is sufficient liability coverage in place on the property if something does go awry, such as a banister gives out during a guests stay. Guests should use extra precaution using accommodations available for guests’ use with the property. These items may not be inspected for safety on a regular basis. Additionally, medical expense coverage may not be included in the host’s policy, so if there is an accident and the host is not deemed at fault, the guest may be reliant on his or her own health insurance for coverage.

• HOME RESTAURANTS Home restaurant sites like BonAppetour offer a new take on dining out. BonAppetour boasts that users can dine in the home restaurants of the “best chefs and home-cooks in the city, who are ready to welcome you to their home for a few hours of great food, amazing company and unforgettable memories.”21 BonAppetour’s web page states it conducts background checks on its users, and staff verify guests will be fully satisfied with experiences booked. Verified hosts are labeled “BonAppetour Verified Host,” which seems to imply not all guests are verified. As with most of the sharing economy companies, users are encouraged to use the rating and reviews section and use the service at their own risk. Typically, if one were to have houseguests for dinner, a standard homeowners policy would provide liability and medical expense coverage. However, due to the exchange of money, it is unlikely that a homeowners policy would provide any coverage for incidents related to home dining experiences.

Feastly is another home restaurant site. Feastly provides cooks with $1 million in liability coverage per occurrence, which includes food illness and property damage to a guest’s property. The policy also includes “host liquor liability.” Host liquor liability covers cooks for negligence claims resulting in bodily injury or a guest’s property damage arising from the guests’ consumption of alcohol during the event.

21 https://www.bonappetour.com/. 1

November 2016 Feastly also notes guests bring their own liquor; hosts do not provide it. The policy does not cover the cook’s or host’s property.

• PERSONAL SERVICES Personal services sites like Airtasker, AskforTask, Fancy Hands, Homejoy, TaskRabbit, Musketeer and Zaarly offer assistance on everyday tasks such as lawn care, handyman repair services and household cleaning. Zaarly boasts a money-back guarantee up to $10,000, but this only covers credit card payments made through the Zaarly payment system. If losses are incurred due to services rendered, Zaarly takes no responsibility for indemnification. In fact, the website states, “You agree that your use of Zaarly shall be at your sole risk.”

Airtasker lists services for everything from information technology (IT) support to furniture assembly and just about everything in between. Users post about the task they need performed, which includes a general description, length of service and earnings potential. Service providers apply for the position in the comments section, providing their qualifications and availability to complete the job. Service providers are backed by a $20 million liability policy secured through a surplus lines insurer. The coverage is offered at no additional cost, and all service providers are covered when the service is planned through the website or application. “Airtasker Insurance covers the Airtasker Worker’s liability for personal injury (bodily injury, invasion of privacy, defamation, assault or battery) and property damage (physical damage, destruction, or loss of tangible property or loss of use of tangible property) subject to the insurance policy terms and conditions.” It is interesting to note there are more excluded than included categories listed on the web page.

DogVacay is a service site offering pet watching and walking services. DogVacay maintains a commercial general liability policy for third-party bodily injury claims up to $1 million per occurrence, $2 million aggregate and no deductible. It also offers professional liability coverage, which covers property damage to guests’ property due to services rendered or failure to render services with the same limits and no deductible. It also offers pet insurance, which covers up to $25,000 in veterinary bills per pet, with a $250 deductible. Additionally, it offers veterinary reimbursement up to $5,000, with a $250 deductible for the host’s pet services arising out of contact with the guest animal.

YourMechanic is a service site that will send a mechanic to your home or office 24 hours a day, seven days a week. Work performed by the mechanic is backed by a limited warranty, which lasts for 12 months or 12,000 miles from the date of service. Additionally, some parts used by the mechanics include additional manufacturer warranties. Mechanics on the site are said to have undergone criminal background and reference checks, as well as maintain certification by the National Institute for Automotive Service Excellence (ASE).

November 2016 Personal services sites are part of the gig economy and the on-demand economy. Freelancers have access to jobs, make their own schedule and can avoid spending time marketing their services or managing payments.

Several services sites are marketed for business use, specific to a certain industry. Crowdspring is an online marketplace for creative services such as graphic design. People seeking design services post their job, designers and writers submit their ideas, and the job owner picks the one he or she likes the best. Crowdspring offers a money-back satisfaction guarantee but no insurance coverage. Upcounsel links lawyers to people and businesses seeking out legal counsel. Fieldagent provides mobile audits and research of data analytics on consumer attitudes and behaviors. Cloudpeeps is a platform to help freelancers market their services and find jobs. These sites create easy access to jobs, but they do not typically provide insurance for the people completing the work.

There are multiple endorsements available for business pursuits under a standard homeowners policy. One such endorsement for permitted incidental occupancies covers businesses run in one’s home such as schools, music and dance studios, and photography. Home day care and business pursuit’s coverage can also be added by endorsement. The business pursuit’s endorsement applies to insureds who want to be covered for liability arising out of business activities when the insured does not own or control the business.

Businesses owned by the insured, such as a startup that sells products on Etsy or provides web design services through Crowdspring, might be able to secure coverage through a home business endorsement to a homeowner’s policy. The home business insurance coverage endorsement is typically reserved for businesses owned by the insured, regardless of where they market their services. The home business endorsement even provides some property and business income coverage. People working full time as freelancers in their home-based business may consider purchasing a separate business owners policy, which typically provides property and liability, as well as business interruption coverage.

• GOODS SHARING Goods sharing includes everything from tools and equipment to designer dresses and handbags. Goods sharing is a good option for those who may not be able to afford expensive or luxury items but want to use them from time to time or maybe just avoid storing the items while not in use. Goods sharing sites may not offer any type of insurance protection for the rentor or rentee of the rented items.

Homeowners policies often provide liability coverage for personal items lent to others. However, exclusions may apply if those items are lent out in exchange for money. The exchange of money for use of personal goods may constitute a business use and exempt any liability coverage from the homeowners policy. If the person renting the items actually owns the items for their business, liability

November 2016 or property losses may be covered under a business owners or commercial general liability policy. Some inland marine policies may provide coverage while allowing for rental of personal goods.

• REGULATORY CONCERN Sharing-economy companies enjoy lower overhead in many instances because they have not been subject to the same requirements as traditional companies. For instance, traditional companies are typically subject to workers’ compensation and health care laws, health and sanitation inspections, licensing requirements, environmental regulations, collection of visitor taxes, and compliance with the Americans with Disabilities Act (ADA). Many municipalities are taking note, and Airbnb has begun collecting visitor tax on behalf of hosts in a number of locales, including, Santa Monica, CA; Portland, OR; and the District of Columbia. In several states, class action lawsuits have been filed against TNCs for not providing workers’ compensation coverage. If sharing-economy companies were forced to comply with the same regulations as the traditional companies that make up each of these industries, it would certainly pose big challenges and lessen their economic advantage.

The sharing economy draws a lot of media attention, mostly because at first glance sharing a space in one’s home or driving strangers around seems shocking and unsafe. In reality, hospitality started long before the sharing economy, and taxi drivers have been transporting complete strangers for decades. The novelty of the sharing economy makes it interesting, and the low barriers to entry mean just about anyone can do it. Based on the law of large numbers, this means there is more propensity for mishaps to occur, which certainly raises red flags for http://www.naic.org/cipr_events.htmregulators. The good news is most sharing-economy businesses are similar to established traditional businesses for which insurers already offer coverage. The main concern is with the low barriers to entry and classification of users as independent contractors, consumers may overlook the need to secure their own insurance coverage. The biggest concern is one of consumer awareness. Consumers need to know to speak with their insurance agent when they embark on any new business enterprise and understand the policies in place by the company through which they will be transacting business.

• SUMMARY With employment prospects uncertain and more people willing to take advantage of new technological developments allowing them to enter the “gig economy,” it seems likely new opportunities within the sharing economy will continue to emerge. As more people become involved on either the selling or buying side of these transactions, it is critical for consumers to be aware of risks and determine if insurance gaps exist within these transactions. The NAIC has a sharing economy section within its Insure U website22 alerting consumers of tips to help them avoid potential insurance-related pitfalls. In addition, the Sharing Economy (C) Working Group continues to monitor regulatory insurance issues related to the sharing economy.

22 www.insureuonline.org/insureu_special_sharing_economy.htm. 1

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The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight. NAIC staff supports these efforts and represents the collective views of state regulators domestically and internationally. NAIC members, together with the central resources of the NAIC, form the national system of state-based insurance regulation in the U.S. For more information, visit www.naic.org.

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